Sell house for profit worth it? Go back to renting

Over a year ago I got my first home. The plan was to stay here for a few years and eventually get into a nicer area, rent it out or sell if possible once I have a job and area I want to stay in figured out. From what I understand if you sell your home after living there for over 2 years and you make a profit the first $250,000 is non-taxable. I have no desire to stay here more than 5 years because it's not the greatest neighborhood.

Houses with similar specs are now selling for $40k over what I paid. This is much sooner than I expected and it's got me thinking about trying to sell next year for the right price. Some of the houses aren't even updated inside, my home is updated. My thought is selling if and when 90k profit is possible. I will very likely go back to renting if I sell. My question is $90k profit worth it? I would likely pay off the truck and student loans which would leave me with about $65k. So I would be completely debt free with $65k left over. I live in southern california which can be expensive. That money would go a long ways in other states. But I am planning to stay on the west coast. Rent for another 3-7 years and save for another house in a much nicer neighborhood.

I have 2 dogs and it's likely the apartment will cost $150 more a month than my mortgage+taxes+ins. But homes costs money to maintain..The house roof probably has 2-5 more years and I just replaced the garage roof. Definitely need to replace water heater and fixing up the backyard would be nice! Oh yeah, my floor furnace isn't working I will replace the water heater and floor furnace before trying to sell.

 

Does the $90k include your deposit? Do you anticipate those prices falling off? Is the neighborhood improving or no?

If you stay you are paying less per month on housing but more total bc of truck payment right? But if you take that cash out and rent, you earn no return on the money. Banks pay no interest now. So that's very little increase to your stash over the next few years till you are ready to buy again.

Stay in it and every mortgage payment is like s adding to your savings and you gain any market appreciation in your neighborhood.

But it depends on what happens in the market, which is always shaky ground!

 

DCGirl, good job securing a house for yourself! The market is very volatile there in California and the value of your home could flux tens of thousands within a few months. Before you consider selling your home, there are a few things that you should take into consideration. First off, you are correct on the first $250,000 ($500,000 married) being tax exempt (capital gains tax). Second, you have to realize that YOU pay for the realtor fees, which I believe are 6%, plus the real estate tax, and possibly some of the closing costs. Basically, if you are looking at selling the house for $440,000 with a mortgage balance of $350,000, you will only take home about $61,000 vice the full $90,000 difference due to the fees that come along with selling the house. If I were you and since you sound like you will/want to be in the area for a while, I would pay down some of the principle and hope that the market goes up in the next 7-10 years, then sell. Even if you have to rent out the home for a little while, it would benefit you to pay down the mortgage before you sell. Either way you roll, good luck and Aloha!

 

I only put $3000 down, used a VA loan. The neighborhood isn't improving. Burglaries still happen often. 2 shootings with two dead in 2013 about 1-2 blocks away. There may have been more shootings but nobody died in those.
I see what your saying but the neighborhood is definitely a motivating factor. Then again good law abiding citizens are necessary too.

I would like to find a good online calculator to help me figure out how much of the principal will be paid off from year to year. I found one but wasn't sure how accurate it was in comparison to my loan.

 

Thanks! I did account for the realtor fees. 7-10 years here would be quite a challenge! But if the profit helps pay for a house in a better neighborhood it's worth a try. Of course prices would be up in that area as well.

I agree with you. When I used the online calculator for principal being paid down for 7-8 years about $50k was paid. It all depends on what the market is like at that point whether I would make out well. If I am lucky I can walk away with more than $90k. I guess I could also rent it out after 7 years if prices aren't great.

The worst than can happen is walking away with nothing, as long as nothing crazy happens in my life. We know how that goes...

 

DCGirl, I would recommend this calculator from bankrate: http://www.bankrate.com/calculators.aspx Just punch your numbers into the Mortgage Payment Calculator and on the next page click on the "Show/Recalculate Amortization Table" tab. This will break down your principle, interest, and amount remaining on your loan.

 

Hey, we posted at the same time! Sorry to hear about your neighborhood being the way it is, but I hope that you find what you are looking for! My wife and I are going to be in the market again soon and that is something that we are always worried about. Especially since we have young children and it makes it a lot less stressful if we are in a better community! Again, good luck and Aloha!

 

Aloha to you sir! Hoping I get to go to Hawaii this summer

I knew what I was getting into. I am not complaining just stating my reasons for not wanting to stay too long. If I had kids I wouldn't have moved here either. I am sure you and your family will be fine. Seems like you would do your due diligence.

Before I purchased I looked like a stalker waiting in my truck, lol. I spent a few days watching what was going on. Looked at sites like crime reports.com, talked to a few of the neighbors. I also knew there was a lot of renters which is usually not a good thing. but in my city its almost impossible to not find renters everywhere. We have one of the lowest rates of properties with the home owner actually living there.

 

I believe that if you rent it out you will lose the tax benefit on your profit. There might be a period of time where that does not apply. I sold my last house about a year after I moved out and got the tax break, but did not rent it during that time. Check this out before you decide to rent it. I understand that there are many potential headaches associated with owning a rental. Keep that in mind, too. Good luck.

 

Yes, check further into the tax break. I may be mistaken, but I think you have to own it for five years and live in it for two.

Glad to see that the housing market is improving.

 

That is true! I believe you do lose the tax benefit if you rent it out. I want to avoid renting out to avoid the headaches alone.

 

Here:

Ownership and Use Tests

To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

Owned the home for at least 2 years (the ownership test), and

Lived in the home as your main home for at least 2 years (the use test).

Exception. If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. However, the maximum amount you may be able to exclude will be reduced. See Reduced Maximum Exclusion , later.

From:

http://www.irs.gov/publications/p523/ar02.html#en_US_2013_publink1000200713

 

You must have lived in it for 2 of previous 5 years. AND owned it for 2 of previous 5 years. These can be different periods, oddly!

Why can't you sell and buy somewhere else now?

If you have $90k to put down, you can surely get a mortgage for something in a better area? I know California is expensive, but there have to be some decent neighborhoods with more midrange prices? Or have your mortgage-getting abilities changed?

 

x2 sell and buy elsewhere

 

As a low-down VA borrower, one thing you can look into in a year or two is getting it reappraised and getting rid of the mortgage insurance. As the value of your house increases, your loan is considered less risky to the lender. If you house is 80% loan to value, you don't have to pay the mortgage insurance anymore. So say your mortgage was $300K. If the value of the home rises to $375K, you're loan to value is under 80%. Your PMI is probably around 0.75-1%. So you're probably paying around $250/month if your home value is $300K.

That will give you some extra money to either pay down the house faster or pay down some other bills. My realtor told me that a lender will typically wait 3 years before they'll consider it.